Greetings. Welcome to the Methode Electronics Second Quarter Fiscal 2021 Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions] I will now turn the conference over to your host, Rob Cherry, Vice President of Investor Relations. You may begin.

Thank you, operator. Good morning. And welcome to Methode Electronics fiscal 2021 second quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2021 Second Quarter Financial Results, which can be viewed on the webcast of this call or found at methode.com on the Investors page. This conference call contain certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports. At this time, I'd like to turn the call over to Mr. Don Duda, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone and thank you for joining us today for our fiscal 2021 second quarter earnings conference call. I'm joined today by Ron Tsoumas, our Chief Financial Officer. Both, Ron and I have opening comments and then we will take your questions. Let's begin on Slide 4 with a brief summary of our financial results for our fiscal second quarter, which ended on October 31. Methode's second quarter sales increased 17% to nearly $301 million. Our net income increased 62%, and our diluted earnings per share increased 60%. Ron will provide more detail on financial results a bit later. Turning to the business highlights on Slide 5. The $301 million in net sales, as well as our $45 million in income from operations, were both records for Methode. The resulting operating income margin was 15%. These record results are validation of our strategy and the product of the relentless efforts and commitment of our global team. In the quarter, we saw significant rebound in automotive demand as compared to the first quarter, which has been impacted by the pandemic and created uncertainty in OEM production schedules. The automotive segment sales for the quarter were also a record at $216 million. It was another strong quarter for our EV businesses, as well. Sales for EV applications were over 9% of our total consolidated sales. We also saw continued strength for EV bookings during the quarter with the annual expected sales from those awards totaling over $28 million. As many of you know, much of Methode's historical growth came from our user interface products. With our move into vehicle LED lighting and with our long-standing reputation and capabilities in power distribution, in conjunction with user interface, Methode is uniquely qualified as a three-pronged solution provider for electric…

Thank you, Don, and good morning, everyone. Please turn to Slide 12. Second quarter sales increased 17% or $43.6 to $300.8 million in fiscal '21 from $257.2 million in fiscal '20. The sales in the second quarter were positively impacted by the increased demand in all of our reporting segments as we recover from the lower first quarter production levels due to the COVID-19 pandemics. The year-over-year quarterly comparisons benefited from the $32 million impact of the UAW strike on General Motors in the second quarter of fiscal '20. In addition, the favorable impact of foreign currency on sales was $6.5 million in the current quarter. The company generated year-over-year organic growth. Second quarter net income increased $14.8 million to $38.6 million, or $1.01 per diluted share, from $23.8 million or $0.63 per diluted share in the same period last year. In addition to the flow-through from higher sales and leveraging of SG&A expenses, second quarter net income also benefited from other income from foreign governmental COVID-19 assistance of $3.3 million, partially offset by $4.2 million of restructuring costs. Please turn to Slide 13. Second quarter gross margins were slightly higher in fiscal '21 as compared to fiscal '20, mainly due to higher sales volumes. Fiscal '21 second quarter margins were 26.9% as compared to 26.7% in the second quarter of fiscal '20. From a sales growth perspective, segment growth mix was unfavorable as a 4% increase in sales in the highest margin industrial segment was partially muted by the 19.8% and 37.8% increases in the automotive and interface segments, respectively. These segments have a lower gross margin profile as compared to the industrial segment. The fiscal '21 second quarter gross margins included $2.7 million of restructuring expense and the second quarter of fiscal '20 gross margins included $200,000 of…

Ron, thank you very much. Operator, we are ready to take questions.

[Operator Instructions] And our first question is from Luke Junk with Baird. Please proceed with your question.

Good morning, everyone. Don, I was hoping we could start with overall award activity around EVs. Just in recent weeks here, we've seen the number of traditional auto OEMs either go kind of quasi-all-in on EVs or at least noticeably increased or accelerated those investments. Curious what you're seeing in terms of conversations around new business awards right now. I realize things are evolving very quickly, but would be curious to get your perspective on what's going on right now.

We're seeing the same. We're -- well, easily, we're saying the most RFQs that we've seen probably ever, for EVs. And if you look at the bookings, better than half the bookings were EV-related. So again, we're seeing the same thing. And you're right. We are seeing traditional customers that are kind of -- either ramping up or going all-in on EVs. And as I said in my prepared remarks, we've got three very strong products that we can sell to these customers.

And then, following up on that, you noted, I think it was in the press release, particular strength in Asia as it relates to EV. I was just wondering if you could expand on that perhaps.

That's an example of our cross-selling into different regions. We added to our sales force there. And then we did that a while ago, and we're starting to see the effect of that, although I should point out that a portion of our sales, their increase in Asia, it was the transfer of some EV product that had been -- had been being produced in North America and that was transferred to Asia at the customer's request, and that was planned. But net, we still improved in Asia considerably.

Okay. And then, Ron, maybe a question for you, and you mentioned on the guidance slide that we do have this modeling issue related to the extra week in last year's third quarter that doesn't repeat this year. Can you may be put a finer point on what guidance assumes for that as it relates to, I guess, mainly top line and any expense implications that we should be watching for?

Yes. So with that -- it's -- let me start by answering it. It's a little bit challenging in the third quarter anyway because of holiday shutdowns and things of that nature, there's typically less workdays in there anyway. But -- so what we're modeling would be the -- in terms of in terms of the sales, about maybe somewhere between 7% to 10% of the last year's quarter sales would not be -- would not be repeated. Because otherwise, the run rates are somewhat similar.

Okay. Any -- yes, assuming we should sort of think of expenses in a similar framework?

Yes. We'll get a little bit less because we're -- yes, the expense lines and all that would be consistent quarter-over-quarter sequentially in that. So just typically modeling the less -- one week less revenue and the accounting for some type of holiday shutdowns in that nature as well.

Okay, that's great. Well, I'll leave it there and pass it on. Thank you.

Our next question is from Ryan Sigdahl with Craig-Hallum. Please proceed with your question.

Great. Thanks for taking our questions. Good morning, Don, Ron. Just -- you mentioned it a little bit, but I wanted to dig a little bit in the guidance. You mentioned some holiday shutdowns, but OEMs are ramping production and kind of looking at industry forecast, I guess midpoint of your guidance is for 9% revenue decline sequentially. Is there anything else to call up besides just holidays? Was there anything pulled forward into this quarter? Anything particularly noteworthy for the next quarter?

No, nothing was pulled forward into the quarter. And we'll have to see what at the automakers do on their releases and what kind of shutdown that they have. We know they'll shut down for a period of time, but it does vary from year-to-year, so we'll have to wait and see a bit more on that. But other than the reduced week from last year -- and it's an unknown on what the pandemic is going to do. Obviously, if an automaker shuts down and then that's going to impact us, to state the obvious. But I don't think there's anything else [ph].

No, there is nothing significant that we got credit for in 2Q that we aren't going to get credit for in Q3 because of that. So pretty much standard run rate.

Yes. I guess, more pointedly, IHS is forecasting global auto production up quarter-over-quarter, calendar Q3, Q4. You guys are down 9%, doesn't something like anything else. I guess, can you help me? Are you guys taking a more conservative approach relative to kind of the industry forecasters?

Well, we look at the industry reports. But then we overlay that with the releases we have, what programs we're on. And that's what gives us our guidance range. And we don't necessarily -- because of our concentration on trucks and SUVs, we don't necessarily track to the SAAR. And that's why we go into excruciating detail when we put together the guidance. We're literally going part number by part number when we put it together because you can't look at Methode and say, okay, the SAAR is up x-percent, so therefore, we will be. In any given quarter, we can be up or down compared to the SAAR. It's just really the mix. I don't want to say that we were conservative in the quarter, but I think we used our normal methodology there to determine the product mix and the guidance.

Good. Just moving over to aerospace. This is the first award that I can remember in some time. Can you comment, I guess, on traction you're getting there and then opportunity if there's more behind that or if this is kind of a one-off award?

It's always very hard to predict. It was a sizable award, noteworthy. So I don't -- I don't know that that makes a trend. But we have seen an increase in RFQs. Whether those materialize in this fiscal year or not, that's always hard to predict. It's a very dynamic business from that standpoint. So I don't know that I would -- I'd read too much into that, other than I can tell you that our -- number of RFQs are responding to our...

Great. That's it from me, guys. Thanks and good luck.

Thank you.

[Operator Instructions] Our next question is from Matt Sheerin with Stifel. Please proceed with your question.

Yes. Good morning, and thanks for taking the question. Just following up on the last question regarding your outlook and specifically demand for automotive. I know over the last couple of quarters, in the June quarter, you saw -- or July quarter, a lot of volatility quarter-to-quarter in terms of customer orders. And then, of course, the big surge last quarter. Are you starting to get a little bit more visibility in terms of weekly releases and order patterns, or is it still somewhat volatile and hard to look past the next quarter?

For the quarter, and I hesitate to say this, but things have stabilized. Keep in mind that that could change here. But there's enough volatility really around the world, maybe more in North America and Europe that makes it difficult for us to go past the third quarter. That's still -- schedules are changing dramatically from release to release. So it will be difficult to forecast that. But for the quarter, I believe the -- when we track the take rate from the release rate, that has normalized for us, which gives us confidence in the quarter, again, barring some OEM shutting down because of COVID.

Yes. And are you getting a sense following this big increase in orders and sales that the auto supply chain is largely kind of normalized after being inventory depleted and building back in that going forward, it's really sort of up to end demand that's going to drive your sales?

If you look at supply of -- or the inventory in truck and SUV, those are still down. So I think it would be difficult to say what percentage is the sell-through versus inventory replacement. But we do know that there still is a -- inventory is still down on some of our key customers. On the other hand, as reported, sales have been very good as well. But there is still a mixed bag of that. And I would anticipate that's going to go into next year for sure. And I would also point to -- we're not -- we're supplying everything our customers need; so we're not missing any shipments. But we do know that the bills are being somewhat moderated by other shortages. Again, knock-knocking [ph].

I got it. I got it. Supply -- other supply chain constraints. Got it, okay. Okay, thanks very much.

Thank you.

And we have reached the end of the question-and-answer session. And I'll now turn the call over to Don Duda for closing remarks.

Thank you. Well, thanks everyone for listening and for their questions, and wish everybody a very enjoyable and safe holiday season. Good day.

This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.